Cover Story

The lure of luxury

While the mid-market and no-frills segments are the flavour of the hospitality industry at the moment, the lesser known fact is that the real meat lies in the luxury segment, discovers Neeti Mehra.

In 2006, a posse of Indian and international hotel chains promised delectable offerings to the nation’s teeming middle class of approximately 250 million, thus making affordable and quality hotel accommodation in the budget and no-frills segment a reality.

The ensuing middle-of-the-segment melee, incidentally, didn't sideline activity at the higher-end of the value chain - ostensibly the expansion and elevation of the luxury segment, minus the fanfare. Today luxury isn't the onerous word that freighted this traditionally socialistic nation. Formerly, hotel development, and frighteningly, design too, was regaled to the mercy of babus, apart from the traditional private sector luxurists - Taj Hotels and The Oberoi Group.

In fact, luxury has infiltrated the mainstream, claiming for its own a position of pride, most notably in the hospitality sector. The coup d'etat is the manifestation of the cliché - yesterday's luxury is today's necessity - clearly visible in the hospitality brand architecture. Consider the spa proliferation, a yardstick for discernable if not extreme luxury. If Oberoi boasts of Oberoi Spas by Banyan Tree, and Taj of Jiva Spa, so does ITDC's Ashok Hotel in Delhi with Amatrra-The City Spa. The latter is a fitting example of a hotel's success in quashing its former downmarket appeal, proving the luxury effect is here to stay.

Size (and classification) does matter

In India, the voluntary hotel classification guideline throttles all classifications beyond five-star deluxe, creating a clutter in the premium segment of five-star and five-star deluxe hotels. The classification aims to standardise world-class services to tourists and is approved by the Department of Tourism, Government of India. The resulting anomalous situation sees hotels with varied, and some suspect, standards of service, elbowing each other to represent the premium category. Till this absurdity is rectified, five-star deluxe and five-star segments will continue to define luxury standards ambiguously.

The strength of this segment is inherent, with luxury being the singular omnipresent factor driving growth across all segments of the Indian hospitality industry since Jamsetji Tata laid its foundation with the Taj Mahal Palace Hotel, Mumbai in 1903. The tenth HVS International's report on hotels in India-Trends and Opportunities- reported that the five-star deluxe category experienced a 4.3 per cent growth in average occupancy, while the five-star segment showed a marginal decline of 1.1 per cent. Veritable cash cows, the five-star deluxe hotels showed an increase in RevPARs, leading in all segments with 32.1 per cent, followed by five-star hotels with 27.3 per cent.

This phenomenal growth will continue. Putting a spoke in the natural progression of brands that desire to have presence across all segments is the realty nightmare. Real estate review figures revealed recently by Knight Frank India and Tramwell Crow Chesterton Meghraj point out that land costs in metros increased a phenomenal 35 per cent and in secondary cities by 30 per cent since 2004, while construction costs went up by 20 per cent. As a result, the industry estimates that hotel project costs across the country have risen steeply by over 40 per cent. Consider this - a luxury project (without land) in Mumbai cost Rs 75 lakh (per room) in 2004, while in 2006 this figure hit rupees one crore. A luxury project (with land) rose from Rs 1.5 crore per room to Rs 2.3 crores. With the market clutter, how will the players proceed? Alliances with developers with deep pockets and land banks are one strategy, but to start shop in an unknown, virgin destination is a gamble that might ultimately pay off.

The fallout of this effect is that hotel chains debuting with luxury properties are stymied from moving on to the lower pockets of the hospitality stratosphere, forcing hoteliers to upgrade three- and four-star projects into five-star ones to justify investments. This Catch-22 situation is exacerbated by the classification process, creating a vicious circle. Inevitably, the country is threatened to become an expensive hotel market in the long term, with mediocre hotels commanding rates of the luxury category of US$ 200-300, the HVS report points out.

What does a 'genuine' luxury hotel do in such a situation? A few tom-tom about their superiority despite non-existent classifications.

The domestic traveller

The luxury market's appeal lured in the niche domestic leisure traveller, but in small numbers. Then, hoteliers discovered the segment's latent yet palpable potential in putting forth a hotel as a destination on its own. Much of this evolution parallels with vertiginous product development. For long the super wealthy languished at the short end of the stick in India, for lack of opportunity. Travel internationally conjoined with exploring a destination, and retail indulgences, to create the luxe experience. But today, hotels as destinations unto themselves (be it Taj's Mahua Kothi at Bandavgarh National Park in alliance will CC Africa or Ananda in the Himalayas) mirror the resurgence of luxe leisure travel of wealthy domestic travellers.

While consumer behaviour and size of domestic Indian wealthy has at best been amorphous, a valiant attempt has been made to dissect it. Last year, Technopak, a research agency, issued an India Luxury Trends report, which threw up interesting findings. It revealed that the new India is creating a new generation of entrepreneurs, achievers and dreamers and the emerging luxury trend reflects emotions, aspirations and lifestyles. It also pointed out that there are about 1.6 million households in India earning over Rs 45 lakh (US$ 1,00,000) or more per year, spending about Rs 4 lakh (US$ 9,000) per year on 'luxury/very premium' goods and services, including tourism, giving a market potential of about Rs 65,000 crore (US$ 14.4 billion).

Predicted growth in the number of such households? A whopping 14 per cent. This clearly points out that there is a market to tap for the luxury hotelier, especially the one million 'luxuriented', whose source of affluence is largely traditional and inherited wealth, coupled with high levels of exposure and awareness to world-class living. Unsurprisingly, they are concentrated in the north (32 per cent) and west (31 per cent) of the country. To the whole luxury class, travel, especially international travel, is a priority with 43 per cent travelling internationally once a year.

Interestingly, the report also points out that within the next three years, the impact of the purchasing power of this community would be felt specifically in the gourmet food and wine segments. Clearly, a sign for the Dom Perignon to be stacked up in anticipation and signature menus to be drawn up.

India, internationally

Where does India stand in the mind of the international luxury traveller, saturated with the staid while seeking the exotic? The recently held International Luxury Travel Market (ILTM) at Cannes focused on luxury travel trends. Notably, the spotlight was on the key emerging markets including India, apart from South America, Russia and the Middle East. A point to be noted by hoteliers - the pulse of luxury travel, the travel mart pointed out, is a worthy experience that can create a "conversational currency". Namely, if the experience is not worth talking about, it's not worth a visit.

The Indian market itself has seen the debut of new luxury hotels in the last few years, including the Oberoi's Vilas properties, the Taj and its Exotica properties, the Umaid Bhawan, etc, the Leela Group, The Park Hyatt Resort & Spa, and whizzing up the elevator are the Four Seasons, the Ritz-Carlton and the Mandarin Oriental, Sheraton's the Luxury Collection, along with the Six Senses' resort brands.

Overall, the prognosis is good. According to Forbes magazine, the number of billionaires has grown from 140 to 793 in the past 20 years. There are now almost nine million millionaires (US$) worldwide. Out of these, high-end luxury travellers are constantly on the search for newer, exclusive getaways in exotic destinations.

But how many will actually descend on India's verdant shores? According to official estimates, 4.51 million people will visit the country by the end of the 10th Plan and foreign earnings will touch US$ 6,800 million. Out of these inbound travellers to India, only a miniscule portion will be the high-spending luxury traveller.

The Luxe psyche

Engaging a guest gainfully will ensure that a brand builds loyalty, maybe through generations. Luxury today is a personal state of mind entwined with an authentic experience. High-end travellers today are demanding exclusive, educational experiences, reflecting their own specific tastes and values. The hotel as the focal point around which the vacation pivots means a greater responsibility on the hotelier to provide a befitting experience. Says PRS Oberoi, chairman, The Oberoi Group, "The gap between luxury and necessity has narrowed considerably. The challenge, as I see it for the hotel industry, is to be able to anticipate these changes and have the ability to meet new demands in as short a time as possible."

What all is a traveller demanding? Meher Bhandara, general manager (Corporate Communications) at Travel Corporation (India), that specialise in inbound and outbound tourism explains, "Spa holidays, stays at luxury resorts, villas and private islands are gaining popularity. The trend is more for individual, tailor-made holiday programmes since travellers today want the freedom to holiday at their own pace rather than travelling in a big group with a fixed itinerary. These catch the fancy of the well-travelled because they are looking out for a unique experience."

ILTM points out that travellers are looking for a more authentic and enriching experience. They are seeking out obscure destinations in an environment that ensures personal security in strange surroundings - both physical and financial. Hotels are scrambling over each other to fulfil these needs, to be accessible yet exclusive. Oberoi elucidates, "We need to be welcoming yet discriminating, protective of valuable tradition but always innovating without compromising the brands on which our businesses are based."

Another interesting trend that ILTM points out is that families are a huge growth area - especially multi-generational families; a trend that hotels should take note and ensure they provide suitable services for all age groups. While teak four-poster bed and sunken white Italian marble bathtubs, Burma teak floors, Edwardian-style claw foot bathtubs, private deck, a villa, access to a personal lagoon, and luxury tents have an appeal of their own, the industry is unanimous in its agreement that service is indeed the determinant of luxury. Interestingly, ILTM points out that presence of the latest technology isn't a priority as it used to be. Oberoi adds, "Despite huge advances in technology and the increasing use of the internet for travel and hotel needs, a majority of our customers still want the human touch. We firmly believe that the core of individual service and customer satisfaction lies in one-to-one interaction between staff and guest."

Luxury brandspeak

The traditional caucus of Taj and Oberois in India have laid down the tenets that go into building a luxury brand. Brands are seeing a value proposition while leveraging past legacy, either of their own or of the destination in question. The underlying essence of luxury hotels in India has predictable heritage and cultural influences, many being converted or recreated palaces with modern conveniences and facilities. Modern luxury interpretations, as espoused in the Ritz-Carlton in Singapore, are rarely seen within the country but are markedly visible in international portfolios.

Clear-cut branding that differentiates luxury brands from the rest is finally being drawn into the brand architecture. Yet it is a template that the West, for instance Starwood, has embraced. Today, Oberoi has its Vilas brand and IHCL is extending its Taj brand to its luxury hotels and resorts, while withdrawing it from the rest of its portfolio and differentiating without diluting the core brand.

Hotel design is another element that lays the basis for luxury, engaging the best in the business to create an invaluable asset. Ananda in the Himalayas engaged Chandu Chhada, principal and founding partner of Chhada, Siembieda & Associates (CSA) - which has worked on projects for Aman Resorts, The Rafael Group, Four Seasons, Mandarin Oriental and The Oberoi Group - to design the award-winning resort. The result was a confluence of modernity with traditional Moorish architecture, Italian Renaissance columns coupled with Gujarati and Rajasthani jharokhas that appeals to both the Indian and the international traveller.

Moving away from en masse to give an air of exclusivity to the property and build brand loyalty is de rigueur. It means consistency and proving to the discerning customer that the brand has walked that extra mile, be it personalised valets, as Six Senses offers, or its staff, known as the brand's 'Conscience' which brings the brand closer to perfection, while ensuring it adheres to protect the environment, a primary concern of the well-heeled.

Brand extensions are another strategy for seamless, horizontal growth across tourism verticals since luxury travel is not to create an isolated unit but an integrated experience. Luxury yachts and cruise liners (The Oberoi Group), private jet planes (Taj Air) and helicopters, luxury trains (The Oberoi Group) and golf courses (Hotel Leela Ventures) complete the experience.

And the segment is evolving. Medical tourism is the next big trend in the tourism sector. According to a study conducted by the Confederation of Indian Industry (CII) and McKinsey last year, India could earn Rs 100 billion (US$ 2.3 billion) through medical tourism by 2012. The Leela has tied up with UK-based Globe Health Tours, offering dedicated cosmetic surgery packages - a move which is just the tip of the iceberg for the hotel industry.

Paying the price

How high is the price of luxury? Apparently a lot. Leela's medical tourism packages range from US$ 2,000 for the seven-night eye lift and laser eye surgery and rise to US$ 3,499 for the 14-night tummy tuck, the USP being the five-star aftercare. On Taj Air, a day trip to Seychelles from Mumbai can set a traveller back by a cool Rs 30.36 lakh. A night's stay at a luxury property ranges from US$ 500 to US$ 3,000, depending on the type of property and the season.

Luring in the uber rich isn't a cakewalk, as hotel brands are not only competing with world class hotels, but also with highly developed and connected international destinations. Mass marketing tools misfire in this target segment, which relies on positive PR, alliances, fairs, and most importantly, word of mouth in the right circles. HRH Group of Hotels estimates that 70 per cent of guests out of its traveller profiles (that consist of business families, top executives and royalty from other parts of the world) fit into the luxury traveller category. Vasudha Sondhi, vice president (Sales) at HRH Group of Hotels, explains, "We have been hosts to some very high profile events and have been extensively covered by lifestyle magazines. Our best ambassadors are the clients who have stayed with us and experienced the original royal hospitality."

Representations by hospitality organisations also reach out to a captive target audience, who are assured of a property's antecedents, be it a member of Leading Hotels of The World, as a few properties of Taj are, or become a part of the Global Hotel Properties as Hotel Leela Ventures recently did. Ketaki Narain, director (Corporate Communications) at The Oberoi Group, says, "We are addressing the luxury market by ensuring visibility in international luxury lifestyle, general interest and travel publications, attending trade shows which give us an opportunity to interact with high-end travel companies and inviting and encouraging opinion leaders to experience the hotels, among others." Returns are high with ARRs for the segment ranging from US$ 500 upwards,” Sondhi adds.

Future perfect

India, in terms of a hotel market, is still in its development phase while development templates of markets abroad are stale with disuse. But the reality is that the epicentre of the luxury market is still nowhere near being established in the country. But prospects are bright though. Out of the 300 hotel projects recently approved by the government, 55 per cent are understood to be luxury hotels, accounting for about US$ 1.6 billion in investment according to industry sources.

But the industry is yet to clamber onto the uppermost tier in terms of exclusivity, styling, and incidentally pricing. The Mansion at the MGM Grand tops Forbes list of the most expensive hotels in the world with a US$ 5,000 price tag only for a room, with villas that cover areas ranging from 2,400 to 12,000 square feet apart from displaying original Picassos on the walls.

What does the future hold? Whether the market is ready for such a development is a calculated guess. The disconnect will prevail till infrastructure improves, except in a few destinations like Goa, the Golden Triangle, Kerala, the Lakhswadweep and the Andamans, apart from the metros. But with islands thrown open for development (Andamans and Lakswdweep) and the development of destination resorts (at Lakshwadweep by Vijay Mallya, chairman of Kingfisher Airlines in his personal capacity), the market is open to innovation, and growth.